I recently &l;a href=&q;https://www.forbes.com/sites/johnnavin/2019/02/23/the-significance-of-stock-market-resistance-levels-5-price-charts/#328a4d9934c5&q;&g;posted price charts&l;/a&g; indicating potential levels of resistance for widely followed stock market indices. Here&s;s an update to that post so you can see what happens, typically, when these spots are reached after weeks of rallying with the buying energy slowly dissipating.
I use classic technical analysis tools to track such things, including the basic &l;a href=&q;https://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:relative_strength_index_rsi&q; target=&q;_blank&q;&g;relative strength indicator&l;/a&g; and &l;a href=&q;https://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:moving_average_convergence_divergence_macd&q; target=&q;_blank&q;&g;moving average convergence/divergence&l;/a&g; also known as MACD. No magic involved, just the observation of basic math.
These help to show how the fierce buying off of the late December lows eventually becomes more and more timid as price resistance -- former levels of large selling from last fall -- is approached.
So, last time I mentioned resistance, markets were heading into them -- now, this is a look at what happens when they hit them.
Here&s;s the updated daily S&a;amp;P 500 price chart:
&l;img class=&q;size-full wp-image-5147&q; src=&q;http://blogs-images.forbes.com/johnnavin/files/2019/03/SPX-daily-3-6-19.jpg?width=960&q; alt=&q;&q; data-height=&q;928&q; data-width=&q;1240&q;&g; S&a;amp;P 500 daily price chart.
This chart shows how buyers gave up and sellers took over back in October and again in November when the price reached just under the 2825 level. The stunning, powerful rally off the Christmas Eve low made it all the way back up to this spot before sputtering and backing away.
You could see at the time how the MACD histograms (below the price chart) hit lower and lower peaks as the energy began leaving the rally as January led into February. We&s;ve dropped below the uptrend line and are now headed back toward the up trending &l;a href=&q;https://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:ichimoku_cloud&q; target=&q;_blank&q;&g;Ichimoku cloud&l;/a&g;, a potential resistance zone.
Here&s;s the updated daily NASDAQ Composite price chart:
&l;img class=&q;size-full wp-image-5150&q; src=&q;http://blogs-images.forbes.com/johnnavin/files/2019/03/COMPQ-daily-3-6-19-2.jpg?width=960&q; alt=&q;&q; data-height=&q;928&q; data-width=&q;1240&q;&g; NASDAQ Composite daily price chart.
Take a look at how quickly this index backed off from the resistance of the October peak -- where sellers took over last time around near that 7600 level.
From a technical analysis standpoint, that&s;s a &q;sell signal&q; (short-term, at least) on the moving average convergence/divergence (MACD) indicator below the price chart -- the same indicator that correctly provided a &q;buy signal&q; at the very beginning of January.
And here&s;s the latest daily price chart of the Russell 2000 index:
&l;img class=&q;size-full wp-image-5151&q; src=&q;http://blogs-images.forbes.com/johnnavin/files/2019/03/RUT-daily-3-6-19.jpg?width=960&q; alt=&q;&q; data-height=&q;928&q; data-width=&q;1240&q;&g; Russell 2000 daily price chart.
The small caps are generally more volatile but the patterns remain basically the same. The rally makes it all the way back to the October resistance spot at 1600 and then runs out of steam.
The MACD &q;buy signal&q; from early January now gives way to a short-term &q;sell signal&q; as March begins. These are &q;trader&q; indicators and not necessarily relevant for long-term investor types. I&s;m just referring to them to show how these markets have weakened from the resistance levels mentioned a few weeks ago.
By keeping an eye on those spots where sellers overcame buyers, it&s;s sometimes possible to find potential targets for future prices.
In my next post, I&s;ll take a look at these indices from a weekly and a monthly perspective.
&l;em&g;I do not hold positions in these investments.&a;nbsp;No recommendations are made one way or the other.&a;nbsp;&a;nbsp;If you&s;re an investor, you&s;d want to look much deeper into each of these situations. You can lose money trading or investing in stocks and other instruments. Always do your own independent research, due diligence and seek professional advice from a licensed investment advisor. I consult -- contact me at jnavin@gmail.com.&l;/em&g;&l;/p&g;
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